World Economy

Russia Holds Key Rate

Russia Holds Key RateRussia Holds Key Rate

Russia kept its interest rate steady on Friday but announced it wouldn’t rule out tightening monetary policy if inflation risks rise, after a month in which the ruble dropped to record lows as oil prices deteriorated.

January marked a difficult month for the Russian economy, which saw its currency decline in near lockstep with the falling oil price, sending the ruble to fresh record lows of 85 rubles per dollar last week, CNBC reported.

The ruble was trading near 75 to the US dollar after the central bank’s first monetary policy decision of 2016.

“It seems pretty clear that policymakers have been spooked by the latest fall in oil prices and the ruble, which has caused the inflation outlook to deteriorate,” William Jackson, a senior emerging markets economist with Capital Economics told CNBC via email.

It was also the first time the central bank warned it may not be able to hit its inflation target by 2017, Jackson highlighted.

Russian inflation did retreat from 15% in December to 12.9%, but the headline rate is still far cry from the central bank’s 4% inflation target.

“It’s clearly difficult to predict interest rates in an environment where oil price movements make a significant contribution to the inflation outlook. Given the weakness of the economy it would probably take quite a lot to actually force the monetary policy committee to raise rates,” Jackson added.

“Our sense is that, so long as inflation continues to edge down and oil prices and the ruble stabilize, there may still be some room for rate cuts. But in so far as these do happen, they will come much later in the year, and be relatively small,” he said.

Interest rates have come down significantly since being hiked to 17% in December 2014, though today’s decision still leaves the bank off its November 2014 level of 10.5%.

And though Russian President Vladimir Putin famously declared the worst of the crisis over at his end-of-year press conference, analysts say there’s still some way to go.

 Repetition of 1998?

Every second Russian (49%) fears the repetition of the economic crisis of 1998, the poll by the Russian Public Opinion Research Center said on Friday. Tass reported.

“Most of those people, in their own words, have not yet overcome the consequences of the default (68%). Young people talk about this more often than the elderly (52% against 42%), and people with low income—more often than people with above average income (56% against 42%). At the same time, 40% of our compatriots think that the repetition of this scenario is impossible,” the center said in a press release published on its official website.

The majority of respondents (62%) said that the 1998 crisis negatively affected them or their families. Twenty-five percent of those polled said the consequences of the default were very hard, and they managed to return to the previous standard of living only after a long time. Around 10% of people say they have still not overcome the consequences of the economic crisis of 1998. Only two percent of respondents say they benefitted from the financial crisis. Every fourth Russian (27%) was not significantly affected by the default.